Retirement: Why small-business owners don't save

Baby Boomers are becoming entrepreneurs at an amazing pace. By some accounts they are starting 50% of new businesses. The U.S. Small Business Administration says more than 5 million Boomers 55 and older either own businesses or are self-employed.

There are plenty of reasons for this rush to entrepreneurship: They have the skills, they have the dreams and many aren't ready to retire. Also, many don't think they have opportunities to continue to work in Corporate America once they get to a certain age.

But what these entrepreneurs are not doing is saving for retirement. While financial planners are not ready to call it a crisis, they are concerned.

An American Express Survey in 2013 said 60% of small-business owners were not saving the money they needed for retirement. And 73% were worried about maintaining their lifestyles in retirement.

There are many reasons entrepreneurs aren't saving.

"Record numbers are not saving any money or not saving enough," says Jerry Linebaugh, CEO of the Linebaugh Group in Denham Spring, La. "I am a small-business owner myself. I have been since I was 16. Capital is the lifeblood of any business, and small businesses don't have enough."

"A lot of time they get caught up in work," says Michael Foguth, founder of Foguth Financial Group. "Successful entrepreneurs put in a lot of hours and sweat equity. Now they want to reap the rewards. They want to take a vacation, do something fancy. They spend it on materialistic things or pump it back into the business for greater growth opportunities."

"The short answer for why most don't save — they are running their business," says Neil Smith, executive vice president of Ascensus in Dresher, Pa. "They are busy driving revenue growth, watching the bottom line, dealing with employees. They make the conclusion that the business will be their retirement fund. In many businesses, it can be a difficult transaction to get the liquidity out of the business."

When they are in a position to save, it is a very difficult choice, says Scott Puritz, managing director of Rebalance IRA. "Entrepreneurs tend to have income streams and net worth that bounce up and down."

Says Lanta Evans-Motte, financial adviser at Raymond James Financial in Calverton, Md.: "It is often difficult to help individuals plan for a future event if they are too busy and distracted maintaining their day-to-day."

Financial planners say it is imperative that entrepreneurs stop long enough to plan for their retirement. And for larger small businesses with employees, a 401(k) or other retirement plan can be a valuable tool to help retain workers.

Smith says there is a lot more flexibility in retirement plans now. "If you are a new business, I would say you need to provide a foundation for your employees," he says. "You might establish a 401(k) plan, and it will probably cost less than $5,000 a year."

Linebaugh, meanwhile, says small-business owners need access to penalty-free retirement savings. That would encourage them to save. And, he says, they also need plans that do not take much time or money to maintain.

But for whatever reason that entrepreneurs have not saved to this point, financial planners say it is not too late to start.

"When I hear the word catch-up it makes me a little nervous," says Puritz. "People say I'm 53 and got to catch up. But that also leads to counterproductive behavior. People think they have to seek out-sized risk to catch up."

Puritz says the second part of saying it is too late is not fully appreciating that people are no longer looking at 65 as a retirement age. "People are now thinking about retirement as being the third act of their lives. People are living into their 80s and 90s. And part of that would be to put away money with the time frame of 20 years. It gives you more flexibility to have a higher percentage of growth stocks in your portfolio. Don't panic when you think you have to catch up. Take a breath and think prudently."

Leo Kelly at HighTower's Kelly Wealth Management in Hunt Valley, Md., says he works closely with many entrepreneurs. And, it's not too late.

"They are so passionate about their business — they are not only putting all their time, energy and attention, but all their capital," he says. "We tell folks you have to take a little bit of that time, passion and capital and put it towards a strategic plan for you and your family. Look at retirement, and be as disciplined at building a retirement plan as you are in building revenue and profitability."

For people who come in late, Kelly says his company does a financial plan and looks at the value of the company. "We look at what the financial gap is. If there is a gap, what we tell them is you can't magically fill the gap. More than likely you don't want to change your lifestyle radically. We get them to save and focus on building up a portfolio to fill that gap. It's never too late."

You have to start small to begin catching up, says Foguth. "Add it into your yearly budget. Put monthly retirement into your budget. Or at the end of the quarter, put in 10%, 15% or 20%. Don't wait till the end of the year. It won't happen. If you haven't saved, you want to start writing checks for retirement."

Robert Bosart, financial adviser with Wells Fargo Advisor's Group in Birmingham, Mich., says entrepreneurs and small-business owners need a team. "They need a CPA, a financial planner and a good attorney on the estate side. There is a realization once your head comes out of the clouds that, 'I need professionals guiding me.' It's a partnership."

USA TODAY retirement columnist Rodney Brooks is the author of a new e-book, Is One Million Dollars Enough? A guide to planning for and living through a successful retirement. The book is available at major online book stores, including Amazon, Barnes & Noble, iBooks, Google Play and Kobo.